Home loan interest rates can fluctuate with changes in the MCLR, which is linked to RBI’s repo rate. An increase in the rate of interest can have a significant impact on borrowers, especially for those who have a very strict budget due to their EMI payments.
With multiple home loan offers by different NBFCs, there are several factors that affect the rate of interest offered to customers. Resultantly, with a shift in regulations and a rise in interest rates, more and more customers face financial crises.
Underneath discusses the options customers can avail in case there is a hike in home loan rates –
- Balance transfer: This is one of the most effective methods to handle a hike in interest rates of a home loan. While a rise in current home loan interest rates leads to the added financial burden on a customer, users can simply choose to transfer their outstanding balance to a financial institution with better rates.
It is crucial that an individual keeps certain points on their mind before choosing the new financial institution for their loan transfer. While the driving factor is crucially that of interest rate, other features like additional loan options, tenure extension, etc. must be considered before making the final choice. Numerous NBFCs have a lucrative loan as well as transfer options for their customers.
- Increasing loan tenure: A maximum loan tenure of 20 years is offered by financial institutions for home loan schemes. In case there has been a rise in rates of interest paid on a home loan, options of extending the tenure of repayment helps immensely. While this does not ensure less of financial repayment, an extension assures the customer of a lesser EMI payment burden.
Primarily, this method of tackling the rise in home loan interest is only applicable to customers who have loan tenures shorter than 20 years. Additionally, the age of the customer should not be beyond 62 years or 70 years of age. The former age limit is for salaried individuals while the latter for self-employed customers.
- Prepayment options: A comparatively difficult option considering this requires financial backup, customers can prepay a portion of the loan amount if they have access to the financial backup. With fall in principal amount to be still cleared, the interest goes down too.
There are numerous important factors to keep in mind when prepaying home loans. Importantly, customers can also setup a fixed deposit amount, debt mutual funds, etc. to help with prepayment after some years of EMI payment.
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The above points list the most effective of options in case there is a rise in rates of interest on a home loan with floating interest options. It is crucial to note that while applying for financing, the then-current home loan rate interest rates have many factors contributing to them. These factors include credit score, outstanding debts, etc. While a situation of hike in interest rate can occur, it is best to judge all factors and even use a guide to getting better home loan interest rates. Essentially, this will ensure a lower financial burden from the beginning itself.
For existing customers of Bajaj Finserv Home Loan, transfer options along with tenure increment options can effectively reduce the financial burden as discussed above. Along with the above pointers, minor steps like foreclosing or clearing other debts with prepayment or regular repayment can effectively reduce the monthly debt clearing expenses of a customer.
